Nike Earnings Beat Estimates but Stock Falls

Nike stock fell late Tuesday by over 4% after the company posted earnings that just beat Wall Street expectations.

Critics of the sports apparel giant’s Colin Kaepernick endorsement are likely believing that a backlash to the former quarterback’s ad campaign is the cause of the selloff following the earnings report, but the truth is bearish investors were thinking about other things.

Revenue for Nike during its fiscal first quarter that ended August 31 increased by 10% to just over $9.95 billion or $10 million higher than Wall Street forecasters were expecting.

The sports apparel maker posted earnings per share of 67 cents during the quarter, which beat Wall Street estimates of 63 cents. The quarter was strong for Nike, but investors reacted as if they had received bad news.

Since 2016, when Kaepernick as quarterback with the San Francisco 49ers first took a knee during the playing of the national anthem, to protect killings of African Americans ply police as well as other forms of racial injustices, Nike has been for the most part silent.

The silence by Nike ended September 4 when the company announced the signing of Kaepernick to an endorsement deal that prompted immediate backlash from President Donald Trump supports including some burning or cutting up their Nike products.

However, the earnings on Tuesday released by Nike were for a three-month period ending in August so if any effect on its revenue, good or bad, would not be apparent until the current quarter’s earnings are complete in the end of November.

One reason the selloff may have taken place is that Nike stock has increased 6% since the announcement of the Kaepernick endorsement and it reached a point it was trading at 72 times earnings.

Another reason is that Nike investors are used to the company beating Wall Street estimates as it has done so for 25 consecutive quarters, but just a so-so beating of estimates appears almost disappointing to them.

However, it may have been a few things in the otherwise strong Nike quarter that worried investors. The gross margins by the company of 44% were less than what some analysts were expecting.

In addition, sales in Asia, Europe and Latin American which together represent 58% of revenue for Nike were mixed.

It appears that the Kaepernick signing has helped sales as in September sales increased overall and if that continues through the rest of the quarter Nike will continue beating estimates.

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